After a long career at Barron's, I joined Forbes as San Francisco bureau chief in December 2010. I've been writing about technology and investing for more than 25 years. With the Tech Trade, I've picked up where I left off when I was writing the Tech Trader Daily blog at Barrons.com. When I'm not working, you can find me riding my road bike around the Bay Area hills, managing my fantasy baseball team, rooting for my beloved Phillies and Eagles and hanging out in the Valley with my family. You can follow me on Facebook, on Twitter (@savitz), and on Google+.

SAP's Snabe: Next Target, Collaboration Software

The German software giant SAP has a huge presence at this year’s CeBIT trade show, which makes sense: the company is the largest software company in Europe. SAP has a roomy display in one of the many pavilions here at the fairgrounds in Hanover, Germany, which is a challenge: how do you create an enticing display of enterprise application software? The answer is to focus on customers, which explains the presence in the SAP booth of displays of athletic shoes, Lego tiles, bicycles and sail boats.

All of those are part of what Snabe describes as a reinvention of SAP that started in 2010. He says the company’s transforming into a growth company again – and he says there’s been a change in the culture at SAP, that the software giant has re-emerged as a source of business software innovation. “We’ve come a long way, but we’re not yet done,” he says.

When I suggested to Snabe that there’s been a change in perception of the company on the Street, he snapped back that what’s happened at the company involves more than just perception. Snabe, who has been at SAP not quite continuously since 1990 – “I had a flirtation with IBM for a couple of years and then came back,” he notes – says SAP was “massively innovative” in the 1990s, basically inventing the whole ERP software market for which the company has become almost synonymous. But as companies get big and successful, he says, there is a risk of leaning a back a little it – and he concedes that SAP for a while lost its edge.

Ergo, the company decided to reinvent itself. As noted, that process has taken shape on three fronts. To jump start the company’s move into the cloud, SAP recently bought the HR cloud software play SuccessFactors for $3.4 billion. Snabe says that SAP had some of the right assets in place to make a move in the cloud, but that because of the subscription model, it was going to take a long time for the business model to kick in. With SuccessFactors, he says, SAP gets a company that has been built in the cloud from the very beginning. While SAP has an innovation cycle of updating software every six months or so, he notes, SuccessFactors upgrades its software every month. “We wanted to continue to accelerate the change at SAP,” he says.

Snabe makes it clear that the company is not walking away from the old-school on-premise software business: the company has 182,000 customers running SAP software, representing 500 million employees. SuccessFactors has about 15 million, by contrast. But he notes that the company thinks of itself now as addressing three kinds of business: traditional on premise; cloud businesses; and mobile. He contends that they can run these businesses at different speeds but keep them integrated and consistent.

During the press conference earlier in the day, Snabe noted that the company intends to add new businesses every 18 months or so, through a combination of acquisitions and organic growth. He notes that SAP’s wallet share of overall IT spending is only about 5% – there is, he says, plenty of room to gain ground. Snabe volunteered that one area they are looking at is “the whole notion of collaboration.”

He imagines offering customers new ways to connect to each other. Collaboration, he says, offers a new opportunity for the company to leverage the strengths of SAP’s installed base. Snabe notes that they already have some assets in this area, including the company’s StreamWork offering, and a small company SAP bought last year called Crossgate which offers EDI management software. Don’t be surprised to see the rumor mill jump in here and start guessing at possible business collaboration companies that SAP might want to acquire down the road.

Meanwhile, SAP continues to see strong growth of its HANA business, which allows extremely dramatic computing speed improvements for some applications. Snabe says revenue from HANA this year can more than double; but he also says that SAP sees moving HANA into the infrastructure of other products, starting in the data warehousing sector; as HANA gets absorbed into other software products, it will be harder to separate out how fast it is growing.

Snabe notes that the company held a contest offering trips to Hana, a lush, remote outpost on Maui, to any companies that can demonstrate 100,000x improvements in computing time from running HANA; he says two companies so far are staking their claim to the trip, including the Japanese electronics retailer Yodobashi – he says the company used to take 3 days to calculate the effectiveness of promotional campaigns, but that with HANA they can complete the task in under 3 seconds, allowing rapid changes in strategy on a daily basis. (If you ever happen to make it to Maui, you simply have to drive the road to Hana, but I would not advise attempting to drive this curvy route at 100,000x the posted limit; you will end up wrapped around a tree, or taking a swim in the Pacific.)

Anyway, the biggest challenge for Snabe, his co-CEO Bill McDermott and their new sidekick Lars Delgaard: maintaining a culture of innovation at a company with the kind of giant installed base that SAP has. Snabe thinks they can do it, and the Street seems increasingly convinced: through Monday the stock is up 28.6% year to date.

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Eric, nice job on this. It’s an exciting time for SAP and even though a re-invention is in full swing, as you pointed out the on-premise/traditional customer base is still hugely important. Validation from the Street is nice too.

Also, here’s a story I wrote that might serve as a compliment to this story, SAP Co-CEO Bill McDermott talking about strategy:

SAP Exec should think creatively, I am not interested in re-inventing tool that has already been created by others. My suggestion to SAP Executives is to work smartly by collaborating with IBM Collaborative Softwares and there is no harm in it.